Medtronic 2011 Annual Report Download - page 44

40 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
In March 2011, we issued two tranches of Senior Notes
(collectively, the 2011 Senior Notes) with an aggregate face
value of $1.000 billion. The first tranche consisted of $500 million
of 2.625 percent Senior Notes due 2016. The second tranche
consisted of $500 million of 4.125 percent Senior Notes due
2021. Interest on each series of 2011 Senior Notes is payable
semi-annually, on March 15 and September 15 of each year,
commencing September 15, 2011. We used the net proceeds from
the sale of the 2011 Senior Notes for working capital and general
corporate uses.
In September 2010, we repaid the $400 million 4.375 percent
2005 Senior Notes due 2010.
In April 2006, we issued $2.200 billion of 1.500 percent Senior
Convertible Notes due 2011 and $2.200 billion of 1.625 percent
Senior Convertible Notes due 2013 (collectively, the Senior
Convertible Notes). The Senior Convertible Notes were issued at
par and pay interest in cash semi-annually in arrears on April 15
and October 15 of each year. The $2.200 billion 1.500 percent
Senior Convertible Notes due 2011 were repaid in April 2011. The
Senior Convertible Notes are unsecured, senior obligations and
rank equally with all other unsecured and unsubordinated
indebtedness. The Senior Convertible Notes had an initial
conversion price of $56.14 per share. As of April 29, 2011,
pursuant to provisions in the indentures relating to the increase
of the quarterly dividend to shareholders, the conversion rate
for the Senior Convertible Notes is now 18.5175, which
correspondingly changed the conversion price per share for
the Senior Convertible Notes to $54.00.
Concurrent with the issuance of the Senior Convertible Notes ,
we purchased call options on our common stock in private
transactions. The call options allow us to receive shares of our
common stock and/or cash from counterparties equal to the
amounts of common stock and/or cash related to the excess
conversion value that it would pay to the holders of the Senior
Convertible Notes upon conversion. These call options will
terminate upon the earlier of the maturity dates of the related
Senior Convertible Notes or the first day all of the related Senior
Convertible Notes are no longer outstanding due to conversion or
otherwise. The call options, which cost an aggregate $1.075 billion
($699 million net of tax benefit), were recorded as a reduction of
shareholders’ equity.
In separate transactions, we sold warrants to issue shares of our
common stock at an exercise price of $76.56 per share in private
transactions. Pursuant to these transactions, warrants for 41
million shares of our common stock may be settled over a
specified period beginning in July 2011 and warrants for 41
million shares of our common stock may be settled over a
specified period beginning in July 2013 (the settlement dates). If
the average price of our common stock during a defined period
ending on or about the respective settlement dates exceeds the
exercise price of the warrants, the warrants will be settled in
shares of our common stock. Proceeds received from the issuance
of the warrants totaled approximately $517 million and were
recorded as an addition to shareholders’ equity. See Note 8 to the
consolidated financial statements for further discussion of the
accounting treatment. During the fourth quarter of fiscal year
2010, certain of the holders requested adjustment to the exercise
price of the warrants from $75.30 to $74.71 pursuant to the anti-
dilution provisions of the warrants relating to our payment of
dividends to shareholders of our common stock.
As of April 29, 2011 and April 30, 2010, we had interest rate
swap agreements designated as fair value hedges of underlying
fixed-rate obligations, including the $1.250 billion 3.000 percent
2010 Senior Notes due 2015, the $600 million 4.750 percent 2005
Senior Notes due 2015, the $2.200 billion 1.625 percent Senior
Convertible Notes due 2013, and the $550 million 4.500 percent
2009 Senior Notes due 2014. Additionally, as of April 29, 2011
we had interest rate swap agreements designated as fair value
hedges of underlying fixed-rate obligations including the $500
million 2.625 percent 2011 Senior Notes due 2016 and the $500
million 4.125 percent 2011 Senior Notes due 2021. For additional
information regarding the interest rate swap agreements, refer to
Note 9 to the consolidated financial statements.
As of April 29, 2011, we had $15 million remaining in aggregate
principal amount of 1.250 percent Contingent Convertible
Debentures, Series B due 2021 (the Debentures) outstanding.
Interest is payable semi-annually. Each Debenture is convertible
into shares of common stock at an initial conversion price of
$61.81 per share; however, the Debentures are not convertible
before their final maturity unless the closing price of our common
stock reaches 110 percent of the conversion price for 20 trading
days during a consecutive 30 trading day period. Upon conversion
of the Debentures, we will pay holders cash equal to the lesser of
the principal amount of the Debentures or their conversion value,
and shares of our common stock to the extent the conversion
value exceeds the principal amount of the Debentures. We may
be required to repurchase the remaining Debentures at the
option of the holders in September 2011 or 2016. For put options
exercised by the holders of the Debentures, the purchase price is
equal to the principal amount of the applicable Debenture plus